By TIOL News Service

HYDERABAD, APRIL 08, 2019: IN terms of notification 27/2012-CX(NT) and Rule 5 of CCR 2004, the appellant filed a refund claim for unutilised part of the accumulated CENVAT Credit of Rs.1,95,30,803/- availed on inputs/input services used in the manufacture of finished goods exported by them from July 2015 to September 2015.

Incidentally, refund u/r 5 is an encashment of the CENVAT credit under circumstances envisaged in the notification. It is either paid in cash or is rejected. There is no question of sanction of refund under this rule by way of credit to CENVAT account because the amount is anyway there in the account. When filing an application for refund of CENVAT Credit under Rule 5 of CCR 2004, the applicant debits the amount from his balance in CENVAT account. If the refund is either fully or partly rejected, then, in terms of Para 2(i) of the Notification No.  27/2012- CE(NT), dated 18.06.2012 "the claimant may take back the credit of the difference between the amount claimed and amount sanctioned". Thus, once the refund is partially or fully rejected under Rule 5, the applicant can, on his own, take credit of CENVAT Credit to the extent its refund is rejected. No order or permission is necessary for the applicant to take this credit.

The original authority sanctioned refund of Rs.1,81,02,267/- but rejected the amount of Rs.14,17,901/-.

Appeals against this order before the Commissioner(A) and the CESTAT did not yield any positive results for the appellant.

In the instant case, the appellant had not taken back the credit of Rs. 14,17,901/- which was rejected.

After losing their appeal before the Tribunal, the appellant again represented to the lower authority for refund of this amount in cash. As the issue had already been decided by CESTAT, the lower authority rejected the request of the appellant for refund.

This rejection was communicated to the appellant by Assistant Commissioner vide letter No. V/30/13/2016-17-Misc(Ref)/60, dated 09.02.2018 and reiterated vide their letter bearing the same number, dated 22.05.2018.

Against this communication, the appellant went in appeal before Commissioner(A) who vide his order dated 30.07.2018 rejected the same.

Incidentally, the Assistant Commissioner while rejecting the request for refund cited the first proviso to Section 142(3) of CGST Act, 2017, which lays down that where any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse.

The Commissioner(A) took umbrage to this observation of the Assistant Commissioner and remarked - "Vide para 8 of the said O-I-O, it has already been held that appellants were not eligible for credit of duty/tax paid on inputs or input services used in manufacture of such goods exported on deemed basis. The decision made by original authority has since been upheld, as noted earlier, by the Hon'ble Tribunal as correct and has become final. Therefore, the appellants do not have a case on merits. However, it is observed that the original authority has communicated an entirely different ground which is entirely out of context and irrelevant to the issue/request made."

Be that as it may, the assessee is before the CESTAT against this order-in-appeal.

The Single Member Bench noted that the following issues required consideration -

a) Whether after claim of the appellant for refund of CENVAT in cash under Rule 5 of Cenvat Credit Rules, 2004 was rejected by the Tribunal, the lower authority give such refund as requested by the appellant?

b) Whether the appellant, who had not taken credit of CENVAT in their account (which they could legitimately do prior to the CGST Act coming into force), can now seek transfer of such credit as Input Tax credit in CGST Act or cash refund?

c) On issues which straddle the old and new enactments, viz., Central Excise Act, 1944/Finance Act, 1994 and the new CGST Act, to what extent does the CESTAT have jurisdiction to decide?

d) In the facts and circumstances of this case, is the appellant entitled to refund of the CENVAT credit?

After extracting the provisions of s.142 of the CGST Act, 2017 and considering the submissions made by both sides with the assistance of case laws, the Bench made the following observations on each of the issues -

++ Judicial discipline demands the lower authority follows the decision of the higher authority. Once it is decided by the CESTAT that the appellant is not entitled to refund of some amount of the CENVAT credit under Rule 5 of the CCR, 2004, the lower authority cannot sanction such refund as it would constitute judicial indiscipline. Therefore, the lower authority was correct in rejecting the request of the appellant.

++ A plain reading of Section 140 of the CGST Act shows that it provides for transfer of CENVAT credit lying in balance in the assessee's account just before the CGST Act came into force. It does not provide for CENVAT credit which may have accrued to the assessee prior to this date but which was not in balance in their books of account. There is also no provision either under the old laws or under the CGST Act of cash refund of any CENVAT which may have accrued to the assessee prior to the CGST Act coming into force but which the assessee has not taken in their account.

++ The CGST Act has a different appellate mechanism for decisions under CGST Act. However, in transitional cases, CESTAT has to interpret and apply the provisions of CGST Act, to the extent and only to the extent, they modify the provisions of Central Excise Act and Finance Act, 1994. Other transitional provisions such as transfer of CENVAT credit lying in balance as Input Tax credit under GST is purely a provision of the CGST Act and CESTAT has no role in interpreting or applying such provisions.

++ The appellant's claim for refund of the disputed amount of CENVAT credit under Rule 5 has already been rejected by this bench in their previous appeal. Therefore, they are not entitled to refund of CENVAT credit. The argument that they could have planned differently and taken back the credit before CGST Act came into force and could have transferred it as Input Tax credit and since they have not done so and hence they should now be paid in cash has no legal backing.

Upholding the impugned order, the appeal was rejected.

(See 2019-TIOL-998-CESTAT-HYD)